Canada Freezes Employment Insurance Rate

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The Canadian Government has announced that it will freeze the payroll tax rate for employees for the next three years.

In 2014, the Employment Insurance premium rate for employees will remain at the 2013 level of CAD1.88 (USD1.81) per CAD100 of insurable earnings. The rate will be set no higher than CAD1.88 for 2015 and 2016.

According to Finance Minister Jim Flaherty, this will leave CAD660m "in the pockets of job creators and Canadian workers in 2014 alone, which will help provide the certainty and flexibility employers, especially small business, need to keep growing."

The EI Operating Account, which records all amounts received or paid out, recorded a cumulative deficit of CAD9.2bn in 2011. Flaherty's Department blames this on the global recession, which it says led to an increase in Employment Insurance benefit expenditures over a relatively short period of time. His 2013 Budget projected that, to eliminate the deficit, the Employment Insurance premium rate would need to rise to CAD1.98 in 2015.

However, falling unemployment has now put the Operating Account on track for a return to cumulative balance, meaning that the hikes will now no longer need to take place.

An employee earning CAD48,600 (the maximum insurable earnings threshold for 2014) can expect to see savings of CAD24 next year. For a small business employing 10 workers, this would represent savings of up to CAD340.

Commenting on the initiative, Dan Kelly, President and CEO of the Canadian Federation of Independent Businesses, said: "As payroll taxes like Employment Insurance are particularly challenging for small business, the announcement of an Employment Insurance rate freeze is fantastic news for Canada's entrepreneurs.

"This move will keep hundreds of millions of dollars in the pockets of employers and employees which can only be a positive for the Canadian economy. As employers pay 60 per cent of the cost of the Employment Insurance system, small firms can use these savings to hire, improve wages or help grow their businesses."

From 2017, the Employment Insurance premium rate will be set annually, at a seven-year break-even rate. The aim is to ensure that premiums are no higher than is required to pay for the Employment Insurance program over that seven-year period.